Commerce Bank Harvard Case Solution & Analysis

Background and Problem:

Commerce Bank was founded by, Hill and commenced its operation in 1973 . It started as a smaller bank in southern New Jersey with an aim to differentiate it from other banks. Soon it increased its branches in areas such as New York, Pennsylvania and Delaware.

Since its inception, the bank has been on the verge of working for long hours and even during the weekend for modified hours. In addition to that, the bank adopted a very different approach and unlike other banks which focused on earning profits, it instead focused on designing and providing high-quality services to its client. Moreover, it viewed the highest quality service as a critical element by which an organization can increase its value in the long term.

Recently, the organization started its Retailtainment program in order to win customers. This program generally involved providing entertainment to the customer during the Halloween and other special occasions where the bank’s staff dressed in a particular way to amuse the customers. Similarly, for this purpose the mascots were hired to enhance such a delighted experience along with this the free delivery of newspaper, coffee and hot dog were all part of this scheme in order to exceed the customers’ expectation and give them the experience that they have never witnessed before.

Jacovelli, who proposes such initiatives to the top management was concerned about the benefits of this program and intended to critically evaluate it in terms of the following way:

  1. Whether the customer really wanted to get entertained whenever they enter the bank?
  2. Did the provision of this program put the main service at risk?
  3. Did it adopt a retail experience too far?

Analysis:

The organization’s delivery system, its competitive position and critical factor for success:

The organization’s service delivery system prior to Retailtainment is as follows:

  1. The customer is treated offered a friendly service and after opening one of the checking accounts; he is provided with a free gift for opening the account.
  2. The high-quality service is provided at each channel, including both the manual and online. Unlike its competitors which forced the customer to take electronic delivery due to low cost; Commerce Bank decided not to adopt such practice and instead supported the customer regarding every type of delivery channel.
  3. The organization follows a philosophy of increasing its deposit account from the customer rather than focusing on increasing its revenue by giving loans. The competitors of Commerce Bank were more concerned about increasing their loan base however; the organization prefers to focus on increasing its deposit base where it expects to earn money on the clients’ balances.
  4. The organization provided a low rate on its deposit account in return for generating the savings from the lower rate; they instead invest the money on providing high-quality service to the client, unlike its competitors which only focuses on providing a higher rate on deposit account and doesn’t concentrate on improving their services.
  5. The organization also refunds the ATM card payments to the clients if they use it in other banks’ ATM system.
  6. Commerce Bank introduces the policy of doing anything which might be expensive, however; its cost would be justified as long as it keeps generating the customer traffic to the bank.
  7. The organization introduces a wow program where it provide incentives, awards and various bonuses schemes to its employees for performing well regarding services such as core deposit growth, consumer loan growth, total losses etc.
  8. As part of this wow program, it is urged to every employee that he needs to improve the quality of service offered to the client in various ways.

As a result of this service design, the organization is able to increase its deposit rate to 30% since 1996, which increased furthermore to 40% during the year 2001. In comparison to the whole United States, whose cumulative growth is at 5%, the organization performs very well in relation to its competitors and develops a strong competitive position. In addition to that, even the customer of the organization seems to act as a fan by remaining loyal to it. Consequently, these initiatives allow the company to move-up the bar and gain reputation in the eyes of the customer of the banking industry, which was very weak few years ago.

The decision which has been very critical in its success was the use of customer centric philosophy which views the quality service as much more of an important element as compared to the increasing numbers of client on the base loan. It puts more emphasis on providing the highest quality service, which satisfies the client, solve their problems and listen to their needs. It would continue to ignore the expense of any services that it provides as long as it keeps on satisfying the client and it also made huge investments in various projects to enhance the client experience.

 

Retailtainment, its effect on meeting goals and any modification of the program:

The motivation for the Retailtainment comes from the following factors:

  1. The organization followed a philosophy of becoming customer centric, focusing on providing high quality service.
  2. It was willing to invest in anything that seems to satisfy the client and exceed their expectations.
  3. As the competition started to get tough because various organizations started to copy the style of the bank, so it became imperative for the bank to stay ahead of the competition and adopt some new approaches.
  4. Most important of all, it wanted to adopt a way that would entertain those clients who were waiting in queue to get their work done.

As a result of these factors, the organization started to adopt various approaches, even the whacky ones in order to entertain the client.

However; the effect of this strategy is limited in its approach:

  1. Firstly, it gives full autonomy to the branch manager in suggesting whatever suits the customer, so the managers started to suggest those techniques which had high risk but they did not bother to think about their precautions such as the case with a hot dog cart, which caught fire and resulted in total a disaster for the branch.
  2. Secondly, various customers view the provision of Retailtainment as a non-valued added service and waste of resources, which should be focused on speeding up the process for more productive areas such as the processing of a particular transaction.
  3. Finally it conflicts with the main purpose of the organization and that is to provide reliable and fast banking service to the client however; with the execution of this program, the focus is on the client’s entertainment (which is not originally the purpose of a bank), rather than improving the service in more productive areas such as processing of the transaction, responding to customer query, ease of transfer funds and also the time taken to complete a particular transaction, all of which are critical success factors for the business.

The program should be modified in this manner:

The organization should focus on improving the core areas of its services such as the time taken to process the transaction, ease of funds transfer, response to client inquiry, number of possible solutions for the client and most important of all the activities is that the staff should be more productive rather than just greeting the client or entertaining them....................

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